The IRS is likely to be auditing more tax returns when a discrepancy is seen between payments reported on Form 1099-K and the income reported on tax returns.
If you are in business, and you take credit cards for payment, you are likely receiving a 1099-K at the end of the tax year. The 1099-K will sum the payment settlements reported to the credit card companies that you use (i.e. MC, Your Bank, PayPal, etc.). You may receive more than one. If you took in $10,000 in credit card payments, you will receive a 1099-K (or several) that shows the amount received by the credit card companies from your business.
The IRS is looking for taxpayers that have discrepancies between what they are claiming as income on their tax return and what the 1099-K says. In a review of taxpayers that received at least 1 1099-k form, it was found that more than 20,000 had discrepancies of more than $10,000 between the income reported on their tax returns and that shown on their Form 1099-K(s).
It’s a simple thing to catch and I’m sure that we will be seeing more audits of returns with large discrepancies. (Don’t assume that the threshold for audit is $10,000. The discrepancy threshold that is ultimately selected for choosing returns to audit will not be published.)
Your tax preparer should be alerting you to this problem if discrepancies are noted. There may be reasons for such discrepancies. If so, make sure you have the documentation to support any such claims. Audits of this nature will likely be one where the IRS will see a high success rate.
AURORA FINANCIAL SERVICES – TAX PREPARATION AND PLANNING FOR INDIVIDUALS, FAMILIES AND SMALL BUSINESSES